An explainer: Keeping up with ISSBs

July 2023

What do the experts think...

We are in the midst of a watershed moment for climate-related disclosure. The publication of the International Sustainability Standards Boards’ (ISSB) disclosure standards - IFRS S1 and IFRS S2 - has created a common language for the reporting on climate risks and opportunities for business. This is the beginning of internationally standardised non-financial reporting for businesses of all shapes and sizes. Importantly, and as expected, both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

How did we get here?

Established at COP26, the International Sustainability Standards Board (ISSB) is one of two standard-setting bodies of the International Financial Reporting Standards Foundation (IFRS). Its mission is to address the complex and fragmented sustainability disclosure landscape and create a ‘comprehensive global baseline’ of sustainability disclosures for the capital markets. Supported by the G20, along with Finance Ministers and Central Bank Governors from more than 40 jurisdictions on six continents. The Foundation is working with public and private organisations, global and local, to ensure accelerated readiness for adoption.

In 2022, the ISSB made two significant moves: announced two draft standards and assumed responsibility for the SASB standards. The SASB Standards are industry-specific reporting guidelines on environmental, social, and governance issues most relevant to financial performance. Covering 77 industries from e-commerce to biofuels and advertising agencies - they are designed to help companies disclose financially-material sustainability information to investors.

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What are the standards?

The two standards that the ISSB have released are known as IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The former is a general requirement and the latter is an industry-specific climate disclosure. 

According to the ISSB, IFRS S1 and S2 are “designed to set a global baseline to enable companies to provide information about sustainability-related risks and opportunities that is useful for investors’ decision-making.”

The objective of IFRS S1 is to “require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.” In other words, organisations should consider any and all material information relating to sustainability-related risks and opportunities that could reasonably impact cash flows or access to finance in the short or long term. 

IFRS S2 on the other hand is intended to “require an entity to disclose information about its climate-related risks and opportunities”. This will allow report readers and decision-makers to understand an organisation’s exposure and resilience to climate-related risk. IFRS S2 requires organisations to calculate their carbon footprint in relation to scope 1, 2 and 3 greenhouse gas (GHG) emissions.

These standards are just the beginning. ISSB Chair Emmanuel Faber has similarly acknowledged that the standards “have been designed to help companies tell their sustainability story in a robust, comparable and verifiable manner”, adding that their publication “is just the starting point as we consult on our future priorities, beyond climate”. 

What happens now?

2023 so far has seen some huge milestones in non-financial reporting. Demands from investors and capital markets for internationally-comparable climate-related disclosures have never been louder. In response, New Zealand, Canada, the US, UK, Singapore and Switzerland have each introduced or are in the process of introducing mandatory climate-related disclosure requirements. 

It is up to individual countries to decide whether to mandate companies to apply the ISSB standards. ISSB Chair Faber said that the standards can be used for annual reports for 2024 onwards.

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